Shares of Eli Lilly and Co (LLY) are down 2% so far in 2012. However, there are now three reasons to consider LLY.
Option Monster reported on the high level of bullish options activity recently: 9,090 June 40 puts were sold for $0.25. In total, more than 15,000 June 40 puts traded against open interest of 5,340. The trade will benefit if LLY is able to stay above $40.25. The large block trade likely represents institutional money. Institutional money is usually smarter, thus worth following. In summary, the recent options activity points to upside ahead for Eli Lilly in the short term.
LLY currently pays a dividend of $1.96 cents per share or 4.79%. This is a solid dividend, and compares favorably to other drugs stocks such as Pfizer (PFE) currently yielding 4% and Abbott Laboratories (ABT) currently yielding 3.3% Also, LLY pays out just over 50% of earnings. At this payout ratio, LLY should not have much difficulty maintaining the yield.
LLY currently has a strong pipeline that should help to offset the impact from Zyprexa losing its patent protection late last year. LLY has 29 drugs in phase I development, 21 drugs in phase II development, 12 drugs in phase III development, and one drug under regulatory review.
While LLY has not had a great start to 2012, it is now time to consider LLY. The bullish options activity, dividend yield, and pipeline are all reasons to consider LLY.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.